After the bad fiscal result in February and with a harvest lower than expected due to the drought, the Government has little room to reach the 1.9% deficit target set for the entire year. With little chance of further reducing spending in the election year, analysts warn that Sergio Massa will eventually renegotiate that target with the IMF as well, just as he did with the reserve target.
The National Public Non-Financial Sector (SPNF) posted a primary deficit of $228 billion in February. From Ecolatina they mark that it was the month with the lowest deficit in the last 6 years in real terms.
With these numbers, the primary red of the first two months of the year under the IMF Agreement metric stacked up $432,000 million, or 0.3% of GDP. “This places the first two months of 2023 as the weakest in the last 30 years in real terms. Given the accumulated fiscal imbalance, the primary result for March should be practically balanced to meet the fiscal target for the first quarter, set in $441.5 billion“, warns the consulting firm Ecolatina.
For the IARAF, to achieve the 1.9% target, in the next 10 months the government should record a deficit equal to 1.65% of GDP. “Government compliance with the target requires new revenue generation, greater real spending reduction, or a combination of both.”
Hand in hand with the drought that reduced withholding tax revenues by 73% in February and lower activity, government revenues -net of extraordinary components- accentuated their real decline last month with a drop of -8.3 % on an annual basis e they spun their fourth consecutive month of contracting in real terms.
“Faced with one of the worst starts to the year in tax matters, eAchieving the fiscal target for the first quarter appears increasingly distant on the horizon. To achieve this goal, it would be necessary to reach a primary balance in March, one of the months in which the seasonality of primary expenditure plays against it. In fact, from 2015 to today, the primary result in March has always been negative”, says Ecolatina.
In this context, “since it is very probable that also the reserve accumulation target for the first quarter will not be achieved, It does not seem so far-fetched that the government risks missing its fiscal target in its quest for greater flexibility (at least for the first quarter) linked to the negative impact that drought has on public finances”.
to balance “Climate shock makes IMF targets for 2023 seem unattainable”. They detail that by the end of this month Argentina was to maintain its accumulated net international reserves (RIN) through 2022. However, it has lost everything it had accumulated and the RIN is $500 million less than at the end of 2021.
To reach the deficit target set with the IMF, the government would need to implement a large adjustment. “From a fiscal perspective, it should reduce the primary imbalance by 0.5 percentage points of GDP in a year of presidential elections, economic stagnation and falling incomes. We do not believe this adjustment will happen,” says Equilibra.
In its latest statement, the IMF announced that Argentina has approved the fourth revision of the agreement and that it will take into account the difficulties in achieving the objectives following the exogenous and unexpected shock of the drought. However, “the agency also criticized the ‘policy setbacks’ and posited it will make the RIN target $2,000 million more flexible, but not the annual fiscal target, forcing a spending adjustment to compensate.” the lower income,” says Equilibra.
“The drought has reduced the points of contact between the political-economic needs and the requests of the Fund. The authorities will walk along the narrow ledge that allows them to violate – secretly – the agreement without losing the disbursements of the organization. The targets are likely to be renegotiated quarterlywith both sides trying to tip the scales their way, but avoiding a breakup,” they said.
AQ
Source: Clarin
